What Is PMI (Private Mortgage Insurance)?
PMI is insurance that protects the lender — not you — if you default on your loan. It's required on conventional mortgages when your down payment is less than 20% of the home price. PMI is added to your monthly payment until you reach 20% equity.
How Much Does PMI Cost?
PMI typically costs 0.5–1.5% of the loan amount annually, depending on your credit score and LTV (loan-to-value) ratio. It's paid monthly as part of your mortgage payment.
| Home Price | Down Payment | PMI Rate | Monthly PMI |
|---|---|---|---|
| $250.000 | 5% | 1%/yr | +$198/mo |
| $350.000 | 10% | 0.8%/yr | +$210/mo |
| $450.000 | 15% | 0.5%/yr | +$159/mo |
How to Remove PMI
1
Request cancellation at 80% LTV — Under the Homeowners Protection Act, you can request PMI cancellation in writing when your loan balance reaches 80% of the original home value (through payments).
2
Automatic termination at 78% LTV — Lenders must automatically cancel PMI when your balance reaches 78% of the original purchase price, based on the original amortization schedule.
3
Get a new appraisal — If your home has appreciated significantly, a new appraisal showing 80%+ equity may allow early PMI removal. Ask your lender about their specific requirements.
4
Refinance — Refinancing when you have 20%+ equity eliminates PMI on the new loan, though closing costs must be weighed against savings.
PMI vs. FHA MIP
FHA loans have their own mortgage insurance called MIP (mortgage insurance premium). Unlike PMI, FHA MIP often lasts the life of the loan if your down payment was under 10%. If you put down 10%+, FHA MIP cancels after 11 years. This is why borrowers who can qualify often prefer conventional loans with PMI — it's removable.